1. by JOO Hyeyoung KOMOTO Yumiko BECHADE Bertrand

2. 2 of 19 The Paint Market The U.S. Paint Market It is considered to be a maturing industry. Industry sales in 1995 were estimated to be slightly over $13 billion Divided into three segments:  Architectural Coatings (43%), paints, varnishes, and lacquers (residential, commercial, and institutional structures)  Original Equipment Manufacturing (OEM) coatings (35%) for durable goods (industrial specifications)  Special Purpose Coatings (22%) for special applications or environmental conditions 43 % 35 % 22 %

3. 3 of 19 The Paint Market The Architectural Paint Industry #1 The sales : $10 billion (w/ sundries). Mature Market. Sluggish growth rate measured in dollars can be traced back to a slowing growth rate in volume (new material, quality, substitutes products) Increasing demand for painting accessories (brushes and rollers). These sales account for $4.5 billion The US paint manufacturers are under growth pressure to reduce emissions of VOC’s and solvents. Gov Regulations

4. 4 of 19 The Paint Market The Architectural Paint Industry #2 Architectural coating $ Sales:  Do-it-Yourselfers (50%)  Professional painters (25%)  The rest goes to the Gov, export, and various commercial uses 50 % 25 % Three types of distributors  Mass merchendisers (50%)  Special paint stores (36%)  Hardware store & lumberyard (14%)

5. 5 of 19 Jones Blair Company The Market Maturity -- increasing competition Mass merchandisers dominate DFW market (50%), where JBC does not compete DFW market declining while non-DFW market growing; DFW still accounts for 60% of market Do-it-Yourselfers – 78% of dollar sales; Professionals – 22 %

6. 6 of 19 The 50-County SW Market Market Segments Do-it-Y 70% Professional 30% Do-it-Y 90% Professional 10% $ 33.6 M (42%) $ 14.4 M (18%) $ 28.8 M (36%) $ 3.2 M (4%) Paint Industry DFW 60% Non-DFW 40% $ 48 M$ 32 M $ 80 M

7. 7 of 19 Decision Problem 1.To prioritize market segments to pursue (identify the more attractive segments) 2.To determine an effective method to increase sales to the preferred segment(s)

8. 8 of 19 JBC’s Market Market Segment Shares $ 1.8M / 33.6 M = 5.4 % $ 4.2 M / 14.4 M = 29.2 % $ 1.8 M / 3.2 M = 56.3 % $ 4.2 M / 28.8 M = 14.6 % Do-it-yourselfProfessional DFW Non-DFW $ 6M / 62.4 M = 9.6 % $ 6M / 17.6 M = 34% $ 6M / 48 M = 12.5 % $ 6M / 32 M = 18.8 % $ 12M / 80 M = 15 %

9. 9 of 19 JBC’s Market Points to Note Market shares vary greatly among four markets JBC is strong in professional market with a 34% market share Weak (5.4%) in DFW, most probably due to mass merchandisers. JB only represent 12.5 % in the DFW area Relatively weak competition in rural markets. Wal-Mart probably not a major threat Dominates rural professional market with 56.3% share

10. 10 of 19 JBC’s Market Which market to pursue ? In this order or priority ? 1. Non-DFW Do-it-Y - high potential for growth 2. Urban Professional - wants high quality paints 3. Non-DFW Professional - already dominant 4. Urban Do-it-Y - very price-sensitive

11. 11 of 19 Market Strategy Alternatives 1. Spend additional $350,000 on corporate advertising 2. Cut price by 20% 3. Hire one additional sales rep 4. Do Nothing (Status Quo)

12. 12 of 19 $ 350,000 on Advertising Required additional sales to recover $350,000 $ 350,000 / 0.35 = $ 1,000,000 $1 M represents an 8.3% increase over current sales. JBC will need to increase its market share by 1.6% of Do-it-Y market to recover additional spending.

13. 13 of 19 $ 350,000 on Advertising Pros +Do-it-Y account for 78% of sales; so, advertising to them may increase sales +JBC’s awareness is lower than national and merchandiser brands; there appears to be an awareness-purchase relation +Research shows advertising affects buying process Cons  Consumer buying process shows Do-it-Y buyers choose a store first, not a brand; therefore, cooperative ad is required, not brand advertising  $350,000 spending will nearly double current expense of $360,000

14. 14 of 19 Price Cut of 20% Required additional sales to maintain current profit of $1.14 M Current contribution is 35%. Price reduction by 20% reduces contribution margin to 15% or.15 Therefore, required sales is $ 28M, which is a 233% increase from current sales in one year !

15. 15 of 19 Pros +Will make JBC more competitive against mass merchandisers in DFW markets +May increase sales to Do-it-Yourself markets Cons  Will lose this high quality image  Required sales to even “maintain” current profits is too high Price Cut of 20%

16. 16 of 19 Hire additional Sales Rep Required additional sales to recover cost of sales rep: $ 60,000 /.35 = $ 171,428 Sales per Non-DFW Professional: $1.8M/200 = $9,000/yr Therefore, about 20 new customers would be needed. * 60% of JBC’s 200 stores Sales per Non-DFW Retailer: $4.2M/120* = $35,000/yr Therefore, about 5 new retail accounts would be needed.

17. 17 of 19 Pros +Could generate significant sales if assigned to the right territory +Professional painters may appreciate the additional “service”, especially considering that JBC distributes through exclusive dealers Cons  Appears current sales force has some time to spare, thus indicating it may be a problem of time allocation, not number Hire additional Sales Rep

18. 18 of 19 Pros +JBC is currently profitable. Why risk changes? +Increasing non-DFW demand may keep JBC sailing Cons  Short-term oriented and conservative  JBC’s growth is only financial, not volume; so, with increasing competition, something needs to be done  Need to keep up with market and competition Do-Nothing

19. 19 of 19 Recommendations  Actively pursue non-DFW Do-it-Y and Professional markets  Secondary emphasis on DFW-Professional market  Seek more retail accounts in non-DFW markets  Hire one additional sales rep who is in charge of developing new accounts. If budget permits, hire two. Each can be assigned to Professional and Do- it-Y markets respectively  Engage in cooperative advertising with current advertising budget  Maintain prices

20. 20 of 19 Calculation It is required additional sales to maintain current profit of $1.14 M The point is that current contribution is 35% and a Price Reduction by 20% reduces contribution margin to 15% or 0.15. Therefore, required sales is : 12M (current sales) *.35= 4.2 M (gross margin) To maintain the current gross margin, we need: (12M+ x)*.15 = 4.2M x = 16M So the required sales is $ 12M + 16 M = $ 28M = 233% increase